Foreign Aid Research Paper

CHAPTER ONE:

INTRODUCTION

1.1 Background to the Study

The role of foreign aid in the growth process of developing countries has been an issue of intense debate. Foreign aid is an important issue given its implications for poverty reduction in developing countries. Previous empirical studies on foreign aid and economic growth generate mixed results. For example, Addison, Mavrotas and McGillivray (2005) find evidence for positive impact of foreign aid on growth; Abegaz (2005) find evidence for negative impact of foreign aid on growth, while AFDB (2005),AFDB (2004) find evidence to suggest that foreign aid has no impact on growth. It should be noted that, although Adelman (2000) concluded that foreign aid has positive effects, this conclusion

Interest in this question has grown as large infusions of aid to developing countries have been recommended in recent years as a means of escaping poverty traps and promoting development (Action Aid, 2005). Major efforts have been underway to mobilize resources for increases in aid (e.g., through an International Financing Facility). In contrast, some have argued that aid has historically been ineffective in promoting growth (ActionAid, 2005) and large increases in aid are therefore undesirable. An intermediate position has been that more aid spurs growth under specific conditions, such as when countries have good macroeconomic policies (Abegaz, 2005). Despite the large literature on aid and growth, “the debate about aid effectiveness is one where little is “settled” (Rajan, 2005:54). Empirical evidence has been provided in favour of the argument that aid spurs economic growth unconditionally or in certain macroeconomic environments (Abegaz, 2005). It is against this backdrop that this study seeks to evaluate the impact of foreign aid on Nigeria’s economic

What is the nature of foreign aid that Nigeria is receiving? ii. Has Nigeria derived any significant benefit from foreign aid? iii. What are the challenges and prospect of foreign aid on Nigeria economic development? iv. How can these challenges be ameliorated?

1.4 Objectives of the Study

The main objective of this study is to examine the impact of foreign aid on Nigeria’s economy development in the fourth republic. The specific objectives, however includes the followings:

1. To examine the nature of foreign aid giving to Nigeria.

2. To establish whether Nigeria has derived any significant benefit from foreign aid.

3. To evaluate the challenges and prospect of foreign aid on Nigeria’s economic development.

4. To proffer solutions to the identified challenges of foreign aid on Nigeria’s economic development.

1.5 Scope of the Study

Given the importance of foreign aid to the economies of developing countries, it is important to understand its contribution to economic growth of developing countries. This study analyzes the effects of foreign aid on the economic growth of Nigeria. This analysis will cover the nature, the benefits and otherwise, the challenges and prospect of foreign aid on the Nigeria’s economy. In doing this, the study will focus on the time period